futures ?

[pillypillsner]

can anybody properly explain to me how the forward selling of a commoditie helps its current cash price?I understand producers want to hedge themselves,but is there not the possibility that this system drives the price of the commodity down?I have never forward priced my noncwb product more than a month or two.I have never regretted it.Yes I have missed a few tops but...I have caught my fair share.
Of course i am on the fence on this issue.Imagine the implications.CWB.Iam interested in Toms opinion.

[crusher]

Our farm uses distant futures contracts to manage risk. I have sold new crop canola, not because I thought it was the top of the market, but because I will have a guaranteed cash flow this fall that provides me a profit margin that exceeds my ROI goals. I am seeding a large amount of wheat this year and I will be doing a CWB FPC for the same reason.

[TOM4CWB]

pilly;

There are two schools of thought on this issue.

Cash marketers can (and usually do with a disciplined strategy) receive just as much as hedgers...

The fluctuation in income is greater with a cash marketing strategy... which means that cash flow is limited at certain points in the marketing cycle.

This is why farms with low debt are normally the cash marketers... they have a higher tolerance for reduced cash flow.

Crusher and I use the same basic theory on risk management... what is "right" for your farm is a personal decision...

Many times the futures market gets carried away on speculative movements in product's prices... both higher than logical, and lower than what is reasonable.

This is where disipline to know which part of the cycle we are in, in important to cash in on the crest and not the valley of prices. The exact same can be said about cash prices as well.

Happy Marketing!